Will any company that's not had a takeover bid from China's HNA Group over the past year please stand up?
The offer Wednesday to buy out remaining minority shareholders in Tysan, a Hong Kong-based foundation engineer, brings total acquisition spending by the owner of Hainan Airlines and its associates to almost $20 billion over the last 12 months.
Little more than a week ago, HNA offered $1.5 billion in cash for the Swiss airline catering business Gategroup, joining the cargo handler Swissport, which it agreed to buy last July for $2.8 billion. The company has purchased a $420 million stake in Brazil's third-largest airline; $500 million-worth of the travel-booking website Tuniu; and a holding in Uber China. Associated companies Bohai Leasing and Tianjin Tianhai have spent $7.6 billion on an aircraft-leasing firm, Avolon, and $6 billion on the electronics distributor Ingram Micro.
HNA also joined in the bidding for companies including the hotel chains Carlson Rezidor and Starwood, as well as London City Airport, according to Bloomberg News reports. For good measure, Sky News of the U.K. reported last week that the Chinese company was looking to acquire a stake in Monarch Airlines.
That's quite a spree for a company whose main operating asset is one of the world's most-indebted airlines.
How is all this going to be paid for? HNA is closely held and controlled by the provincial government of Hainan Island, so it doesn't routinely publish full financial accounts. But you can get a pretty detailed picture from the prospectus for the 2 billion yuan ($309 million) of 7 percent bonds the company sold earlier this month.
In the 15 quarters through Sept. 30, HNA had operating cash flows of about 50 billion yuan. A further 116 billion yuan was raised from financing, and 135 billion yuan was spent on investments.
Operating activities amounted to only about two-thirds of earnings, with the remainder coming from non-operating revenue, such as dividends paid on investments and asset revaluations.
As a business model, that sits somewhere between an industrial conglomerate and an investment fund. Also like an investment fund, HNA isn't shy of leverage. At the end of 2014, it had net debt of about 111 billion yuan, a larger sum than that owed by McDonald's:
None of this necessarily matters as long as HNA has the earnings and liquidity to meet its debt payments promptly, and the operating performance to deliver rising profits. Things don't look too hot on that front, though. Take a look at HNA's quick ratio and interest cover, which gauge its ability to meet short-term liabilities and pay its interest out of income.
Both are around or below their respective safety levels of 1 and 1.5 times. Return on assets hasn't cracked above 1 percent throughout the period, suggesting the group would have been better off sticking its money in the bank.
As we've seen with Anbang Insurance's recent shopping spree for offshore hotels and financial businesses, the usual financial constraints often don't apply when it comes to well-connected Chinese companies following Beijing's push to invest globally. So there's no reason to look a gift horse in the mouth if HNA turns up at your headquarters waving a checkbook. But it might be as well to ask for cash.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
(Fixes description of Monarch Airlines in fourth paragraph to remove reference to charters.)
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